Indonesia has experienced a significant drop in its global competitiveness, falling 13 places to rank 40th out of 69 countries in the World Competitiveness Ranking (WCR) 2025 released by the Institute of Management Development (IMD). 

The country was previously ranked 27th in 2024, and now trails far behind neighboring Malaysia, which climbed to 23rd place.

According to Arturo Bris, Director of the IMD World Competitiveness Center (WCC), Indonesia had demonstrated one of the strongest competitiveness performances post-COVID-19, primarily driven by export gains in oil and gas and other commodities. However, the recent trade tariff conflicts have taken a toll on Southeast Asian economies, including Indonesia.

"External conditions have impacted several Asian economies. The tariffs imposed on Southeast Asian countries have eroded the benefits of their own policies," Bris said on Wednesday, June 24, 2025.

Syafruddin Karimi, an economist at Andalas University, said the sharp decline reflects a harsh reality: Indonesia continues to struggle with deep-rooted structural issues.

"Basic infrastructure, especially outside Java, is still lagging, leading to high logistics costs and weak economic efficiency," he said.

Syafruddin also pointed to the inadequate quality of human resources for future industrial needs, regional development disparities, and a complex bureaucracy that still hinders public service efficiency and legal certainty − key factors needed to support the business sector.

"Businesses still face shifting regulations, high tax burdens, and a lack of innovation incentives," he said.

Syafruddin warned that the new ranking sends a troubling signal to global investors about the perceived direction of Indonesia's policies. Without immediate reforms in investment climate, vocational education, and digital bureaucracy, Indonesia risks losing long-term growth momentum.

"This ranking is not just about reputation. It’s a critical compass for global investors assessing a country’s risks and potential," he emphasized.

"When Indonesia plummets to 40th in just a year, it triggers alarms. Investors interpret it as a sign of policy instability, government inefficiency, and weak infrastructure support."

He noted that in investment decisions, perception matters as much as reality. A low ranking could undermine investor confidence before they even begin due diligence.

Mohammad Faisal, an economist from Center of Reform on Economics (CORE) Indonesia, added that the ranking reflects both public and private institutional effectiveness.

"There’s a strong link to the recent change in government," he said, pointing out that Indonesia was still ranked 27th in 2024.

This year’s drop, he argued, stems from doubts about the effectiveness of the new administration under President Prabowo Subianto.

"The key concern is whether the government can execute its programs effectively and deliver real economic impact," Faisal said.

He emphasized that restoring public trust in government performance would be crucial to regaining competitiveness.

"The burden now lies on Prabowo’s administration to prove itself through clear planning, strong coordination, and quick responses to national challenges," he said.

Faisal also stressed that the private sector must be more responsive to economic problems. With improved public trust and a more dynamic private sector, Indonesia's competitiveness could be restored and enhanced against regional rivals.